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A response to Saffers complaining about proposed expat tax

Apr 26 2017 18:47
*Dhanyal Davidson

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"If the implementation of these taxes wields you unable to live in Bermuda or whatever other tax haven, move somewhere else. You have this luxury," writes Dhanyal Davidson in response to another user's reaction to a proposal to tax expats.

The article, “To SA from Bermuda: There is no such thing as tax-free havens, was written in response to ex-minister Pravin Gordhan’s comments in the budget that South Africans living in tax free havens must pay income tax to add to the fiscus in their birth countries.

In a podcast, published on Biznews, BDO’s head of personal and expat tax Shohana Mohan explained that the rationale is “purely to avoid a situation of double non-taxation, so it’s to avoid the situation of an individual not paying tax in any jurisdiction”.

Currently a South African citizen living and working in a tax haven pays no personal income tax in the foreign country and no tax in South Africa. When filing their SA tax return their income earned abroad is exempt under s10(1)(o)(ii) of the Income Tax Act, No 58 of 1962. Since Gordhan’s comments, there is no shortage of people explaining the mechanics of this exemption.

READ: SA expatriate in Philippines dismisses high life myth

Davidson writes: I could argue in favour of the writer about the cost of living in Bermuda. I would argue for this strongly if a country like USA was going to instate a tax like this for all Americans abroad (and not only those making over a certain amount like they currently do - the rationale of which I will talk to later). But, the reality is that another factor is at play in the South African context.

Instead, I aim to talk specifically to certain comments in the article alluded to before. I would like to instead remind the writer of the article of the South African socio-economic factors at play here.

“My wife and I are currently based overseas, Bermuda (the most expensive country in the world), where there are many South Africans adding to the Bermuda economy rather than the South African one.”

Being a person of colour and having lived in one of these picturesque tax havens, I have witnessed first-hand that the vast majority of South Africans living abroad are white. This is, in my view, as a direct result of the benefits that white South Africans enjoyed in SA in their accumulation of wealth and subsequent ability to move abroad.  Most South African citizens have not been on a plane, never mind enjoying the luxuries of a foreign island they ‘escaped’ to. So, at this point, dear writer, I would like to say for the first time – check your privilege.

“I would like to point out that many SA expats choose to go work overseas where their appointment and performance is based solely on merit and where hard work gets rewarded”

Snore. I present two perspectives on this.

READ: Taxing SA expats in Dubai: 3 points to consider

A hiring decision in an ideal world should be for the long term promise seen in the prospective individual. People of colour in South Africa have in some places surpassed and in others come close to their white compatriots, despite the shackles of Apartheid and white privilege holding them back. Let’s take the black individual who may have come close to your achievements but just shy of it. They have shown greater aptitude and skill than his/her white counterpart has by achieving close to what you have despite greater headwinds. This individual, in my mind at least, shows greater promise for the future and would be a much better long term choice for the company if they are willing to help them realise their potential.

Another perspective, if Apartheid didn't exist then statistically black South Africans would occupy 8/10 jobs in every occupation from CEO to petrol attendant. The rise of the young educated South African of colour now heightens competition in the market and leaves some of the 2/10 South Africans disillusioned with reality, complaining that they weren't picked on merit. Most of the time, this is merely the first time you are competing on a level playing field.

“The idea to start taxing expats where they do not pay tax already…easy way out for SARS… before actually trying to solve corruption within government.”

Stamping out corruption within government will not be solved overnight and is a longer term initiative. Shorter term initiatives, such as the tax on expats in question, can alleviate some of the burden. There are no exact figures to support this but entertain me for a second. Daily Maverick in 2015 published an article estimating that SA loses R30bn a year to corruption. This estimate is based on a formula from Transparency International, a global civil society organisation leading the fight against corruption. SARS on April 3, 2017 announced their personal income tax collections for the 2016/2017 year of R426bn. The total SARS collection amounted to R1.36 trillion. Even if we assume all the corruption was funded by the personal income tax collections, the R30bn corruption bill still only accounts for almost 10% of personal income tax revenue being misspent. Would you be fine if you only had to pay 90% of the tax due or are you absolved of all tax because some money has been misspent?

READ: SARS collects revenue of over R1.14trn

I am not supporting corruption in any way and am disgusted that some of my tax money goes toward this, but find solace in the 90% of my tax money going towards government services I benefit from.

“There are many other government taxes priced into everything,”

Again, you live on an island, and are paying for a lifestyle most other South Africans can only enjoy via Facebook feeds. Facebook feeds on mobile phones accessing Wi-Fi from whatever public space they’re lucky enough to be in because there just isn’t enough leeway in their budget this month for a R5 Cell C voucher. As said before, check your privilege.

“We have a couple of properties, investments and all our retirement savings in South Africa, but with things going the way they are, we have no option but to get rid of all these investments and permanently immigrate overseas.”

South Africans are among the world’s worst savers, with the household saving ratio of -0.5%. Again you throw your privilege around. Perhaps after your sale of these investments you could spare some change for some airtime so residents here can continue to drool over the lifestyle you enjoy abroad.

“The saddest thing about this entire attack on our democracy is the fact that most expatriates, including us, have our families back in South Africa; parents, brothers and sisters.”

The saddest thing is in fact the majority of South Africans, plagued with the wrongdoings of the past which, I would argue that you benefited from, are stuck here, with their families, slaves to debt, somewhere in SA you’ve probably only driven by and scoffed at. If the implementation of these taxes wields you unable to live in Bermuda or whatever other tax haven, move somewhere else. You have this luxury.

READ: Poor economic growth dragging down tax revenue

One can't forget our socio-economic background in the context of anything SA related. People need to stop trying to forget. America taxes expats earning over a certain amount. Those are the ones who benefited a lot from the system before they left so they should still be contributing to their welfare of their home nation and are in a better position to help the fiscus.

No matter how one tries to justify it, it would seem like the majority of people kicking a fuss will be well-off white people and that is evidence that this planned tax regime is achieving what it should – redistribution of some of the wealth in the country. At an extreme, consider if every white South African left to tax havens after Apartheid – South Africa would’ve been crippled as those who benefited from Apartheid are no longer around to contribute to the welfare of the nation.

READ: 'Stop plucking the goose that lays the golden taxes'

In my view, the opinion expressed showed no humility in privilege and no awareness of the plight of most South Africans. There are much bigger issues at play locally than the one we’ve now both wasted time on. You should consider yourself lucky to be in a position you can country hop as and when the economic and political situation no longer suits your pocket.

I returned to South Africa to try to make a change and help improve things. As a person of colour some may argue this is less my duty than it should be yours, having directly benefited from the wrongs of the past. If I were in your shoes, I would be paying towards the fiscus voluntarily as recognition of my privilege and in pursuit of helping those South African’s who were left behind in the regime you so easily forgot about when writing this - Apartheid.

Dhanyal Davidson is a CA(SA) living and working in Cape Town after a short stint with Deloitte Cayman Islands.

Disclaimer: All letters and comments published in Fin24 have been independently written by members of the Fin24 community. The views are therefore their own and do not necessarily represent those of Fin24.

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